The illusion of “cheap” coal power in Australia has been smashed by the Australian Energy Regulator in a report that seeks to absolve the big generators of predatory behaviour, but highlights how the increased cost of coal is making the biggest power source in NSW incredibly expensive.

The state of NSW relies on coal possibly more heavily than any other grid in the world: Its five big generators provided 88 per cent of total generation in NSW in 2016/17 (See graph above, on right hand side).

In the wake of the political “crisis” around energy that has been confected by the federal Coalition government this year, the AER was tasked with ongoing monitoring of wholesale prices in NSW on behalf of the COAG energy ministers.

What it found would likely disappoint the Coalition ideologues who like to blame renewable energy at every turn. It turns out that the fault for the near doubling in wholesale electricity prices in NSW in 2017 – from $30-$65/MWh to $80-110/MWh – lies with the cost of the fossil fuels: coal and gas.

Much of this has happened in states like South Australia and Queensland, where one or two companies dominate the market. But the AER noted last November how Snowy Hydro and Origin had conspired to force a huge surge in market prices by using bidding behaviours to create scarcity.

In a conclusion that requires some degree of mental gymnastics to comprehend, the AER argues in its latest report that there is no evidence of such predatory behaviour by the big generators in 2017 – just that they have shifted almost their entire capacity to higher cost bands.

Quite how they could have done that with more competition in the market begs a question or two, but the AER numbers are quite damning.

Gone are the super-peaks engineered by the likes of Origin and Snowy Hydro last November, but the AER notes that capacity that had been offered at under $50/MWh in the past year has been offered at between $50-$150/MWh in 2017.

It puts the blame for this on a rise in the cost of the coal itself, as previously subsidised supplies ran out and generators were forced to negotiate new contracts just as international price of coal rose.

The rises were across the board – from AGL, Origin and Energy Australia. Even Snowy Hydro – generating from gas but mostly water – shifted large amounts of capacity that had previously been bid below $30/MWh to between $150/MWh and $300/MWh.

This Snowy jump is blamed by the AER not just on the rising gas prices, or even rising water costs, but by the hydro generators piggy-backing on the gas generator price hikes.

“As a result the rise in gas prices, and the lessening of the competitive constraint provided by gas, (Snowy) has also increased hydro offers,” it notes.

This graph above is interesting. It shows that since the closure of Hazelwood, Snowy has virtually eliminated any “cheap” capacity.

In effect, it won’t switch on its mostly hydro and some gas generators at a price of less than $80/MWh, but mostly you have to pay them at least $150/MWh or more just to get them out of bed.

The Hazelwood effect has had an impact across the broader market. This graph below shows the reduction of cheap capacity (orange and red) since Hazelwood closed across the whole market, coal and gas generators included.

But may God strike you down if you dare suggest that this is the result of reduced competition, or the existing players exercising their dominance of the market.

The simple conclusion, which you may whisper quietly at the altar to the fossil fuel energy gods, is that they don’t need to extract extreme prices in peak events – they are making too much money out of good old “baseload”.

Just for good measure, the AER goes through the list of the generation fleets of all the major generators. Coal and gas plants get proper names, like Liddell and Tallawarra; wind and solar are reduced to “PPAs with intermittent generation.”

Nice. And for the record, those “intermittent” generators do have names: the 102MW Nyngan solar plant, and the 53MW Broken Hill solar plant.

On the coal issue, the AER notes that coal prices had jumped from $71/tonne in 2015/16 to $110/tonne earlier this year, forcing the “coal cost” of generation alone to jump from $30/MWh to $55/MWh.

That’s interesting. That number is barely lower than the cost of new wind farms, or solar farms, yet does not include either the capital cost of the coal plant (just the fuel cost), nor the environmental damage it causes.

Cheap coal simply doesn’t exist in NSW any more.

And if it did, the NSW generators are not offering anyone access to it – they are too busy making record profits, as the results from AGL and Origin show, and as the boost in valuation of the Vales Point plant from $1 million to $700 million also reveal.

Elsewhere, the AER alludes to the nature of competition and the market structure – things identified by just about everyone as the principal cause of the problems in the NEM, and a market power the incumbents have fought to protect – from opposing renewable targets, energy efficiency schemes and demand management, and new rules that might encourage battery storage.

The AER, however, says it needs some more time to think about this. “Analysis of these factors over a longer period is required to reach any definitive conclusions about the effectiveness of competition in the NSW wholesale market,” it writes.

It says it will get back to us in 12 months time.

Note: The changes to bidding patterns noted by the AER.

AGL decreased the amount of capacity offered between $0-30/MWh from November 2016. It offered this capacity at increasingly higher prices through 2017, peaking at around $90-100/MWh in August 2017. More recently, it offered this capacity at lower prices, around $50-70/MWh.

From December 2016 through to March 2017 the capacity that Origin previously offered between $0-30/MWh was offered between $30-50/MWh. From April 2017 much of this capacity was offered at even higher prices, peaking in October 2017 at $60-90/MWh.

From February 2017 EnergyAustralia reduced the capacity it offered between $30-50/MWh, offering it instead at $50-70/MWh. By August 2017 it offered this capacity between $70-90/MWh. More recently it offered this capacity at lower prices, around $50- 70/MWh.

In January 2017 capacity that Delta previously offered between $0-30/MWh was offered between $30-50/MWh. Delta also offered more capacity at $60-150/MWh during 2017.

From January 2017 capacity that Snowy Hydro previously offered from $0-30/MWh was offered at higher prices, including between $150-300/MWh.

could we please ask the ‘Coaler Champions’ within The COALition, the Joyce, the Canavan, the Kelly and the Abbott to respond to this item. The numbers don’t lie, the ‘Coaler Champions’ have no clothes, the jig is now up.

Mark Roest

They might even tell the truth if the jig is truly up — “we’re the elite, and we can jolly well do what we want to do for our class.”

MaxG

Which has been done over the millennia. It was never any different, ecept for the odd revolution 🙂

rob

hi sophie ecept?

MaxG

The problem is: they can’t read 🙂

rob

a bit like sophie….but I noticed a huge improvement this week!

Tom

Sounds like Visy and Amcor to me. Or maybe the Big 4 banks who always seem to match their out-of-cycle rate rises with each other.

Generators should be forced to place their sell bids for the next day by 8pm the previous night. Re-bidding is garbage.

Mike Westerman

I can never understand why rebidding is allowed, rather than them carrying insurance for the contingency of a machine not being available.

shinytop

Bit like re-voting in the House of Reps.

Hettie

They got away with that too, didn’t they. Bastards.

Brad Sherman

Basic capitalism at work. Charge what the market will bear…

Tom

Except it’s not – capitalism is competition – this is collusion.

Brad Sherman

Yes it is. As often as not. The current capitalist model in my view is the big fish eat the agile little fish so that they don’t have to compete and then can become rentiers. Growth by acquisition is easier than competition and the objective is to eliminate competition. That’s human nature at play. In Australia, the lack of competition and excessive charges is particularly prevalent in many areas.

The case of utilities (water, gas, electric) would, to my mind, be better served as strongly regulated natural monopolies. We should never have even contemplated flirting with a pseudo-market system.

Capitalism – charge what the market will bear (that applies whether or not there is competition – by definition, competition just lowers, in theory, the price the market will bear). He who holds the capital makes the rules to further entrench his advantage.

I suspect we are in furious agreement!

Tom

Furious agreement – I think so too.

Much like “Workchoices” – the theory was that employers would be competing for employees, and employees would be competing for employment. The absolutely predictable outcome was that employers would pay a little as the market could bear, as there wasn’t genuine open market competition between employers for employees – there was always a bit of job scarcity (a few unemployed people looking for jobs that didn’t exist).

I think restaurants are a good example of true market capitalism. They charge what the market will bear, but the market will also shop around for lower prices and/ or better quality. The expensive and below-standard restaurants lose customers and go out of business – creative destruction. If the restaurants are all making big profits then new entrants will establish themselves, but they must be cheaper and/or better to compete (low barrier to entry). Therefore over time “productivity” improves – a better product and/or a cheaper price.

Bit Pissed by your comment! soz if I am reading it wrongly……Employees in Hospitality have just lost all their penalty rates for working on weekends! They get normal pay for every hour worked! My staff in the Cleaning Industry get time and a half for the first 2 hours worked on Saturdays and double time for any hours worked on Sundays…….Me Very Happy to pay them all they are due…….I indeed pay them more because I expect hard work and loyalty from all my cleaners! Many of my staff have been with my Company for over 20 Years! When I go out to Restaurants on a weekend I ask the staff whether their Employer pays them .what I consider the appropriate amount……If not I ALWAYS PUT AT LEAST $30 IN THERE POCKET! Your analogy is so so wrong……THAT IS WHAT HAPPENS TO MOSTLY YOUNG AUSSIES WITH A LIERABLE GOVERNMENT……. my staff $50 plus per hour…..them $18 …..tis so wrong

Tom

@Rob – Sorry – I think you’re interpreting my comment differently from the message I was meaning to send.

Workchoices was shit. It was pure idealogical high-brow Liberal party theory that it promoted free bargaining competition between potential employees for an employer who will pay them most. Of course it was going to create a false market where the little guy gets crapped on.

As for restaurants – I’m afraid I was neglecting the labour cost side of the equation when making my analogy. That’s what industrial awards (should) be for – before ideologues from both sides of government who are on the take from the Australian Hotels Association decided to water the industrial awards down.

My analogy was simply that restaurants competing with each other for customers is a good example of a functioning market, whereas generators competing for energy customers is not.

Hettie

No wonder we’re voting with our , feet, metaphorically speaking.
And just as well we are, since it seems to be rooftop solar that’s keeping the aircon humming in NSW in the heat conditions that bring the fossil fuel generators to failure.
If we could only pursuade the average solar punter who has air con to put it on a timer to come on, set to say 24, 25C, a couple of hours before they are due to come home, before the house has reached peak temperature and the fabic of the building and all its contents have reached 35C.
By contrast to the heat outside, the house will feel blissfully cool. The hard work of cooling it down has been done during peak output of the solar panels, and keeping things comfortable through the evening will take way less energy as the outside temperature drops and the air intake is cooler.
But no.
That would be wasteful, turning the cooler on when nobody’s home, wouldnt it?
Nope.
What is wasteful is coming home to a house where everything, not just the air, is 40C, and turning the aircon to 18C to try to get comfortable quickly, when the solar output has dropped way below maximum.
How to get that message across?

Mike Westerman

Yes it is no wonder Hettie – when you think that to make “pre-cooling” work efficiently and effectively, you need good ceiling insulation in particular. Yet when the most successful program supporting ceiling insulation was executed, with better safety statistics then the norm, it was excoriated by the Luddites, and money that could have been put towards further energy efficiency measures instead wasted on a royal commission on the program. The government has no shame, purpose or value, and Australians are rightly judging them so, itching to be rid of them.

Hettie

You may be surprised, Mike (or not), to learn that you do not need to convince me about the pink bats.
It has always baffled me that Rudd chose to can the whole program AND theow Peter Garrett under the bus, instead of simply deregistering the very few operators who had house fires or installer deaths. The installer training was mandatory. The fires and deaths were the direct resilt of cowboys taking shortcuts.
There were so many conscientious guys who were badly hurt being left with huge stocks of material, staff that had to be let go. So unnecessary, so typically Rudd.

Mike Westerman

No sadly not surprised! Just another example of our pollies failing us

rob

WOW ……you’re on a mission here Hettie…….Keep going!

stalga

One of those deaths was from dehydration, another was electrocution. Garrett was informed by people in the industry that installing foil insulation meant it was only a matter of time before a tragedy occured, and Garret listened and Rudd didn’t. This was because the foil was installed just above the ceiling battens (where most of the wiring runs) using a large steel staple gun. It was an accident waiting to happen and half the industry knew it. I’ve first-hand knowledge from the inspector who attended soon after, it was real bad.

Another issue was that there was no safety code for working in ceilings, Rudd brushed that off too, because installing insulation in his mind was just a simple job. Full blame on Rudd, his cowboy attitude and arrogance are to blame.

Hettie

My recollection is that various public servants and Garrett pleaded for another week to sort the finer details, but Rudd insisted on rolling the program out immediately because he wanted a bounce in employment stats. Then refused to accept any responsibility for the tragedies, and as I said before, threw Garrett under the bus and ruined some good small businesses by canning the whole program. Real spoiled brat stuff. He did that really well. And often.

Mike Westerman

Regardless of a few pirates who ignored their legal and moral obligations the project still achieved admirable OHS stats apart from the energy stats. The Royal Commission was a gross misallocation of tax payers funds,but typical of this government.

lin

yes. a few dodgy small businesses do the wrong thing, break OH&S rules and rort the system, and the government gets crucified for it, ffs! And our craven media continue to refer to the insulation and school infrastructure programs, which were both rated as having extremely low rates of rorting and extremely good long term outcomes as being some sort of disaster. I hope there a particularly nasty place in hell for the politicians, their PR advisers and the media tycoons that successfully pushed this crap propaganda.

rob

AMEN! The service shall so end! A bit like Malcontent saying “and the high court shall so find ……re Banacible ……Loved your post!

Yes, and also… Starting the air-con earlier means you can use a smaller unit. It is not blasting out maximum cold air in an effort to get the temperature down in 5 minutes.

Mike Westerman

But bear in mind that particularly for “cheap” air cons, the condenser coils tend to be undersized so the COP degrades with higher ambient temperatures – if day time temperatures are up in the high 30s and nighttime below 20, there is a big difference in performance.

Fair enough. Therefore, don’t sacrifice quality when sourcing the aircon unit/s. Also, such a large daily temperature range suggests a drier climate. If so, then high thermal mass is your friend! 🙂

Hettie

Nights here very seldom above 15….or below -10

Hettie

Indeed. And it’s not just the air that gets hot. The fabric of the house, the furniture, everything heats up and then releases its heat to the cooling air. A couple of hours of gentle cooling gets the whole home cool.

Alan S

Experiment with your aircon using a watch and a thermometer on a hot day: With all shading drawn, turn it off and see how long it takes to become uncomfortable, checking that temperature.
Now let it continue to warm to a stable temperature then turn the aircon on. Check how long it takes to return to a comfortable temperature. You’ll probably find it needs far less than two hours to cool the house.
I realise your point is to use the PV when available and store it as ‘coolth’ but unless your house is particularly well insulated and well shaded AND has plenty of internal thermal mass to store the coolth, most of the benefits of two hours of airconditioning will be long gone by the time you get home.
This is very important if you’re on a decent FiT but even with a lousy FiT you’re better exporting electrical energy than wasting it as thermal energy.

Hettie

I don’t have aircon, Alan, because my house has lots of internal thermal mass, is very well insulated, has double glazing, and the eaves exclude the northern sun from the spring equinox to the autumn equinox, but allow it to penetrate deep into the house, warming the exposed concrete slab, in the cooler months.
Armidale has summers that are far milder than most of Australia, although they are rapidly getting hotter. Used to be about 10 days a year over 30. That was 20 years ago
Now it’s more like 10 days over 35.
But there is a big diurnal temperature swing, so on summer nights everything is open to the cool night air, and ceiling fans drive that air down onto the slab. In the morning, I close everything, including the blinds. Deciduous vines on pergolas shade the north, east and small west windows.
When it is 36 outside, by 5.00pm it is barely 24 inside.
But I am saving up for a small aircon, to provide just a couple of extra degrees of cool on the worst summer days, but mostly to replace the gas heater, which has become very costly to run.
I know I am weird.
Very few people seem to understand how to keep their homes comfortable, even in Armidale’s bitter winters.
Those on these pages do, of course, but for the most part, ignorance and lack of interest rule. So they pay through the nose and grumble all year round.
So unnecessary.

Alan S

You’re not weird and your house sounds more energy efficient than mine. Agreed that many prefer to whinge instead of modifying their building and behaviour however there’s a glimmer of hope in the number of homes open and visitors on this year’s Sustainable House Day

Hettie

The choice of land, design and materials were all driven by the facts that where thermal comfort is concerned I am an aging princess, and that a series of poor choices have left me with no super, so I need to be very energy efficient.
Plus I am a gardener, so using plants intelligently to help with climate control was obvious.
Also, although I have lived in Australia 45 years, I have the kiwi awareness of the value of winter sun,and dislike of excessive summer heat. The principles are wasy to understand.
Less so is the Aussie insistence that the main windows must face the street even if that is due west.
Why? She cries in despair. Why???

rob

ouch hettie my home faces east west…….but I do have huge eaves to reduce summer heat……… the House is over 50 years old,,,,,belonged to my my parent who bought it for $9300 in 1972……..I bought it out from my 2 brothers when my lovely mum passed away 10 odd years ago….cost me $300 k and have since added an extra 300sqm to it from a developer cos he couldn’t use all the land due to significant gums on the property…….you won’t believe the price I paid……$100 per sqm ……ie 30 K for 300 sqm…….as long as it was all cash…..that included the resident koala and $10k to turn it all native….now adding an extra 20 kw of solar but waiting on council approval…..should be all completed by March 2018

Hettie

If by huge eaves you mean 3 metres or more, you have the makings of delightful verandas. Spaces for out door living at any time of day, just choose if you want sun or shade. Or extend the roofed area to make a good sized space. 3.6 m is ideal. Then a trellis of big mesh suspended from the edge of the roof, Reo works well, for about 500mm down, to carry vines. Grapes are very fast, give a delicious green bower. Just weave the growing shoots into the wire as they grow, chop off anything crazy. Summer sun blocked, gorgeous autumn colour, winter sun comes in a loooong way. After the leaves fall, hack the growth back to the wire frame. Fruit if you choose, but ornamentals make less mess and don’t attract the wasps. The east side makes a fabulous spot to sit with a dog, a book and a beer on a summer afternoon.

rob

GOOGLE MY ADDRESS…….I WILL SEND IT IN AN EMAIL!
the new carport will go over my current 4 car garage and adjoining shed…hoping the councils say yes!

rob

on the Eastern side I have a huge pergola going right to the edge of the pool….western side I only have shutters for all the windows!

I remember learning about all that stuff in the late 1970’s in my architecture studies at UQ. We went through how to calculate heating and cooling with thermal mass, how to manage the sun with window and shade placement and so on. None of it was new, even then.

Fast forward 40 years and it’s still seen as too expensive to build, too alternative or just too hard.

As you say, so unnecessary.

Hettie

Yeah. Well the sun has been up there for a few years now, and the guys who built Stonehenge and all the other stone circles knew back then about the way its angle to the earth changed over the year. So building appropriate eaves depth is not hard.
Appropriate thermal mass of course is not so simple, with tropical climates needing little, and alpine climates needing lots, all internal and well insulated.
Hey ho. I so wish that I had become an architect instead of a nurse. Bit late now.

rob

Hettie IS THE SMARTEST PERSON ON THIS SITE!

Hettie

If I’m so smart, how come I’m not rich?

rob

HETTIE, smart does mean rich! your comments are always witty, to the point and righteous! Monetary wealth is not a measure that I would ever hold you to! It is your intellect that scores you all the points! Cheers rob

lin

Alternatively, if you live in a low humidity area, run evap. aircon. Much cheaper on electricity as it is a fan and a small pump. Also useful for blowing smoke out of the house rapidly after you burn the dinner.

Hettie

Very true. However, r.c. air con is very economical for heating. Far cheaper than the gas, which was a good choice in 2011, but now, not so much.
I expect aircon will pay for itself in a couple of years.

lin

yes. planning in putting in RC for heating asap, but tossing up if a battery should go in first. decisions, decisions…..

rob

Research TINDO…… on a podcast recently the C.E.O. hinted on R/E that he was exploring Aussie made Batteries very soon……#NEEDTOSAYTHEYAREINSTALLINGMYNEW20KWSYSTEM . They also will have a new 300w panel ready in the new year……me thinks i want those! As to evaporative cooling all I can say is Yuck…..makes the house smell like a wet dog and makes me sweat!

I remember Adelaide as often being oppressively humid in summer, at least compared to inland. Swampies do not work well with humid conditions.

rob

does that make me a swampy? I have no idea what that is……but I hate humidity! Plus …..LOL I’m retired and work no more…….Just me a proper air con, my german shepherd and my huge pool…..Plus 10Kw solar system ….soon to be upgraded to 30kw…..thank you TINDO!

lin

negative. A swampy is an evap aircon.

rob

Thanks for the heads up!

stalga

Whatever rocks your boat. You do know block capitals are the online equivalent of yelling at someone?

rob

WHO MADE UP THAT RULE?

stalga

It’s common knowledge, has been for a decade or so. Any chance of an apology? Or are you too belligerant?

MaxG

Let the lights go out is certainly a strategy these clowns are pursuing; scare the heck out of the public, and support a COALition government in their spin to embrace coal for Australia’s future.

Chris Fraser

The coal dream is still unsustainable. This mature technology is not being maintained. It has been eclipsed by newer technologies on every metric including economically, socially, environmentally, on public health, on saving of other resources, etc, etc. Their Owners just appear to have very relaxed regulators and overlords right now. This includes political parties of different stripes.Yes, we still have more work to do on competition. The ACCC won’t be any help on this. For a reasonable start, each ‘gentailer’ is devolved and each possesses only 10% of the market. It seemed to work well for Bell Telephone. Even better, new ‘gentailers’ are only permitted to invest in new technology. And read RE for more good ideas …

Malcolm M

If fuel alone for a coal-fired power station costs $55/MWh, how is the Queensland power price dipping to the $50 to $60/MWh range during periods of low demand ? Is it because of
a) the State-owned generators are accepting a lower rate of return on their assets because of State government direction ?
b) much of the coal is contracted at long-term low-priced contracts?
c) much of the coal used for generation is is not available for export because of inadequate transport infrastructure ?

It seems the Gladstone power station, which requires railed-in coal that could go for export, does most of the cycling according to demand, whereas Kogan Ck, which would have among the highest rail transport costs to the coast, runs 24/7.

Mike Westerman

Gladstone altho railing in coal is serviced by longish contracts and runs with low capacity factor as a peaker. It probably has fuel prices of around $25. Kogan Ck has local coal delivered by conveyor from the owner’s mine. Being a supercritical plant despite air cooled condensers it has a low heat rate. The combination makes it the lowest cost hard coal generator on the NEM.

Catprog

d) The coal plant is running at a loss during those times because they cannot shut down.

stalga

Point A, 100% correct. The premier directed the generators to stop gouging after the state treasury was “enhanced.”

RobertO

Hi All, The only guarantee that the NEG provides is bigger prices and Coal Power is already contributing more that it’s fair share (they will game the market at a rate of $10/MWhr – $30/MWhr until they are closed and near the end they will be looking at $100/MWhr – $300/MWhr unless the government can provide the guarantee for mega profits. Putting it politely we’re being take to the cleaners by a bunch of theives). I have forcast 20% rises year on year for about the next 5 years to my bosses.

neroden

So, the point we have all been waiting for worldwide has happened in NSW. Building a new solar farm or wind farm is cheaper than OPERATING an EXISTING coal plant.

Now the only thing that can stop solar or wind is if they outright try to ban it through regulatory hurdles. They won’t get away with that.

lin

“They won’t get away with that”
They will certainly try, but in the long term they will fail.

Robert Comerford

The whole electricity supply market has become an an absolute scam, designed to provide super profits to those involved. I don’t know what decade the gullible public will wake up and force change. With abundant sun and wind we should have the cheapest, cleanest power in the world.